The concerned article by Civil lawyers of Dubai not only discuss the meaning of guarantee cheque but the legal consequences surrounding such cheques when issued in UAE. Concept of Bank Guarantee:
The issuance of a bank guarantee gives rise to a separate and independent obligation for the bank issuing such instrument i.e. the guarantor and the principal debtor. It is regarded to be an autonomous liability issued by the guarantor to the creditor, also known as the beneficiary, by the principal debtor.
There will be no effect of the issuance of any type of transaction or underlying contract between the beneficiary or the principal debtor on the bank guarantee. Irrespective of any type of understanding or contract between any of the three parties i.e. the guarantor, the principal debtor, or the beneficiary, or irrespective of the position of the principal debtor, the guarantor will remain bound to the bank guarantee.
The guarantor is assumed to be another principal debtor distinctive of the actual principal debtor and they both are not each other’s agents or representatives. A joint as well as several liabilities is created on the part of both the guarantor and principal debtor and are regarded to be mutually exclusive of each other. This is considered to be a paramount difference between the guarantee and the bank guarantee since unlike the bank guarantee, a guarantee gives rise to the incidental obligation.
The legality of Bank Guarantee:
1. Amount of Bank Guarantee: The UAE law does not consider a bank guarantee without any amount as legal. It is expressly provided that a bank guarantee should be of a specified amount.
2. Time Limit of Bank Guarantee: The time limit is not a necessary constituent according to the law of UAE for the Bank Guarantee. But if the time duration is present in the instrument, then it will on its own get expired on the lapse of such time period. Also under Article 418 of the CTL, there is a chance of eliminating the obligation on the part of the guarantor when the case involved includes no renewal of the instrument before the expiry of the guarantee or when the beneficiary has not made a request for payment within the prescribed time. In addition to this, it is implied that where the time factor is absent, then the general law of limitation will apply to the bank guarantee. But since such limitation period is also absent, it is taken to be 10 years from the date of issuance of such instrument.